Mixing up paths and goals

RPS legislation (which seems to have recently died in the Senate, although could conceivably be reintroduced on amendment) is well-intended, but poorly constructed.

Roll the clock back 100 years, and assume you’re the legislator tasked with figuring out how to get the population to go West. Which do you choose: (a) the Homestead Act, giving people land as soon as they prove that they can get there and cultivate it, or (b) a tax rebate to anyone who hitches five white horses to a Conestoga wagon and takes Route 66 west?

A silly question perhaps, but a good metaphor for how most RPS rules work. Rather than articulate a goal, a la the Homestead Act, they pick a series of preferred technologies to incentivize. The result is an utter mishmash at the state level, where virtually every state has a different legal definition of renewable energy. All states include wind and solar, but then the comparisons fall apart. Some like biomass, some don’t, and some only if it is grown and/or combusted in the right way. Some states like hydro, some don’t, and some only like it if it’s small. Few like trash incineration, for understandable reasons. Many like natural gas (provided it’s used in a fuel cell) for goofy political reasons.

I would argue that this has been to the detriment of renewable fuels advocates, for a couple reasons. One, it has effectively equated renewables with handouts. Virtually nothing that is included in the definition of renewable energy in any jurisdiction is truly economically competitive at current prices. This isn’t a knock on those technologies, but rather an observation on what has become a self-sustaining prophecy, where those tasked with implementing RPS rules have interpreted one of their objectives as being to develop new technologies (and therefore expressly not to support economically viable ones). This need not be the case.

However, this gets us to a larger issue. RPS sounds really good politically, and is endorsed by lots of politicians. But the narrow list of technologies that they include (and the excessive focus on expensive ones) has made all RPSs really expensive, either because of inherent cost or — more commonly — because most RPS markets are supply constrained, thus driving up the costs of certificates. If we recast these rules in terms of goals, we would see a flood of new technologies being deployed — and since we define the goals, we can ensure that we’re comfortable with the consequences of those technologies. If noncarbon emissions are a concern, write them into the goal. If siting/zoning is a concern, write it into the goal. But frame it as a goal.

And this brings up the final problem with current rules, borne out in yesterday’s Senate hearing. When all RPS is expensive, the political debate becomes one of “Can we afford it?” or, its sinister stepsister, “Why should we subsidize them?” In other words, it has now become a political article of faith that clean energy is expensive. Which isn’t really true — it’s just that the particular paths we’ve chosen to reward are expensive.

I will be candid that there are losers in this reformulation. If we define clean energy by goal, it will lead to a flood of new technologies in the market. This will drive down the price of renewable certificates and change the debate from “Can we afford it?” to “How quickly can we roll this out?” These are all good things. But the result is that the current beneficiaries of high prices — primarily wind and solar — will get less money per kilowatt-hour for their projects. This may slow the deployment of those technologies. But — to be blunt — who cares? These are paths, not goals. We ought to seek a world that maximally uses clean energy, not one that maximally uses some particular technology.

Let’s go back to our Homestead Act thought experiment, but roll the clock forward. Which would you rather have: (a) a world where energy keeps getting cheaper and relies on ever-less carbon, or (b) a world that uses lots of wind and solar?

The choice ought to be an easy one. But in order to make it, we need to rethink our approach.